U.S. further delays final decision on Keystone XL pipeline

President Barack Obama has said he will have the final say on whether to allow the pipeline connecting Canada's oil sands region to Texas refiners, and several government agencies had been given until May to weigh in. This had raised expectations of a final decision by mid-year.

But the State Department said on Friday it was extending that agency comment period, citing a need to wait until the Nebraska Supreme Court settles a dispute over what path the $5.4 billion TransCanada Corp project should take.

"That pipeline route is central to the environmental analysis for the project and if there are changes to the route it could have implications," a senior State Department official told reporters.

The legal process will likely continue past November and might stretch into next year, meaning more delays for the politically-charged issue that has been on the drawing board for more than five years.

By linking Canadian fields to refiners in the Gulf Coast, the 1,200-mile (1,900-km) pipeline would lift an energy patch where heavy oil is abundant but that is reached only by burning vast amounts of fossil fuels.

The oil industry agues projects like Keystone can reduce the United States' reliance on Middle East oil while partnering with one of the country's closest political allies, Canada.

Delaying Keystone means "the United States will continue to rely on suspect and aggressive foreign leaders for the eight to nine million barrels of oil that is imported every day," TransCanada Corp chief executive Russ Girling said.

But Keystone opponents - among them environmentalists who make up a part of Obama's political base - say consuming carbon fuel to wrench oil sands crude from the ground will worsen climate change and the pipeline meant to carry up to 830,000 barrels a day will only spur more production.

They expect Obama to reject the project and so fulfill a commitment to battling climate change.

OBAMA'S OWN PARTY

Stakes in the dispute have increased as Obama leads his party into the mid-term elections. Republicans, seeking to bolster their hold over the House of Representatives and take control of Congress by winning a majority in the Senate, have portrayed Obama as depriving Americans of thousands of jobs by delaying the decision.

"Clearly he wants to get this past the mid-terms," said Senator John Hoeven, a Republican of North Dakota, of the fresh delays. "I'm not convinced that's a good strategy. Because people are going to see it for the political decision that it is."

Environmentalists were heartened by Friday's move, which they said left more time to mobilize public opposition.

"Millions of Americans have taken a stand against Keystone, and my hope is that's making the Obama administration think twice," said Bill Snape of the Center for Biological Diversity which helped organize a share of the 2.5 million comment letters received by the State Department.

Several lawmakers, though, said they would waste no time pushing for a Keystone approval through Congress.

"I plan to use my power as chair of the Senate Energy Committee to take decisive action to get this pipeline permit approved," said Democratic Senator Mary Landrieu, who faces reelection in her energy-producing state of Louisiana.

Friday's move will upset some others in Obama's own party. Just a week ago, 11 Democratic senators, many facing tough November races, urged him to make to make a decision by May 31.

CANADA 'DISAPPOINTED'

The move is likely to infuriate Canadian politicians who have grown increasingly irate over delays.

Canadian Prime Minister Stephen Harper's office was "disappointed that politics continue to delay a decision," his spokesman said.

In the near-term, delaying Keystone XL is likely to rattle the Canadian oil sector.

Oil sands producers already sell their crude at a discount due in part to a transportation shortage that has hit producers such as Suncor Energy Inc and Cenovus Energy Inc. But more pipeline delays could aid oil-by-rail developers like Gibson Energy and Canexus Corp that are racing to fill a gap left by a lack of export pipeline capacity.

The Nebraska dispute is rooted in a state law that would have fast-tracked approval of the route and muffled landowner objections. That law has been challenged in state court.

(Additional reporting by Timothy Gardner in Washington, Scott Haggett in Calgary and Randall Palmer in Ottawa; Editing by Sandra Maler and Frances Kerry)